Purchase Order Automation is the method of using an automation platform to enforce and automate a purchase order approval process. A centralized software would automatically send a purchase request to the appropriate team member for review and approval. Once approved, the PO would automatically be created within the ERP, eliminating the need for data entry. Ultimately, it removes the requirement for people to physically route purchase orders for review and approvals via physical paper or email and streamline the process.
A Purchase Order process can look different for many organizations and it can include many different people and departments. Usually, it consists of the below steps:
However, these are the REQUIRED steps. In reality, there are many more steps involved in a manual process.
With an automated process in place, your accounting team can more easily manage incoming invoices, payments, and allow them to focus on higher value activities. It also enforces a purchasing process and rules, so that your team can put in levels of control to protect your business.
Depending on how many Purchase Orders are created each month, your team could be looking at drastic savings and benefits from implementing an automated solution.
Common Challenges from Manual Processing
Often when processing in a manual, paper-based environment, organizations face many similar challenges. While these may not all the same for you, we see that the below issues are often what drives automation at an organization.
- Lack of efficiency in process
- Paper heavy
- No accountability or visibility into the process
- Security risks
- No process regulations or control
- Time burdensome
Whether your organization is experiencing these or not, there are many benefits that you and your team can take advantage of by leveraging an automation solution to drive your purchase order process.
The Benefits of Purchase Order Automation
If you are dealing with lots of paper, email, legacy systems, and lack of security when processing Purchase Orders, then implementing an automation solution will provide you and your team with many benefits. Whether you are a small company or large, organizations of all sizes can take advantage of automation and reduce the time spent on low value activities.
While results vary for every organization, below are the most common benefits that companies experience when automating their Purchase Order Process:
- Increase of process efficiency
- Cost Savings
- Reduction of human error
- Visibility into Processes
- Flexibility & Control
Increase of Process Efficiency
An automated procurement process allows you to decrease your processing times and increase process efficiency. From the streamlining of mundane & repetitive tasks, to ensuring that the process is followed according to the rules and controls set in place, automation empowers your team with the ability to have full visibility and confidence.
When processing Purchase Requisitions and Orders manually, steps are duplicated, missed, and time is spent on low-value activities. Often, things are overlooked or purchased twice because there is no control over the process. Automation allows your team to move to real-time processing. There is no longer a delay between PO approvals to getting the information over to the vendor. This provides significant time savings and because of the full audit trail, there is no longer any time spent tracking down missing orders or documents.
Leveraging automation not only reduces the processing time, but also eliminates steps altogether. Below is an example or an automated Purchase Order process. The manual steps required has dramatically decreased, allowing team members to have more time to focus on higher value activities.
When an organization is processing in a manual environment, there are many costs associated both expected and unexpected. While companies anticipate the related costs of paper, ink, time spent on processing the POs and overhead, many often don’t include the costs of actions and tasks that aren’t documented. For example, the time spent looking for missing documents, chasing approvals, processing orders twice, and more.
A study by APQC revealed that manual purchase order processing can cost organizations as much as $506.52 per PO. What this means is that if an organization is processing ONLY 10 purchase orders a month, they are spending around $60,000 annually on this process. Automation provides a decrease in processing times and costs, allowing companies to put more money back in their pockets.
Reduction of Human Error
Let’s face it, as humans we often make mistakes. While most of them are harmless, there are some cases when these errors can cost companies thousands, and sometimes hundreds of thousands, of dollars. From mistaking a 10 unit purchase of an item on a PO to accidentally ordering 1000, human error threatens an organization when they are processing purchase orders manually.
An automation solution removes the need for manual data entry and allows your team to put checks in balances in place to prevent from making mistakes. The system will automatically flag items that are outside of purchase policy and it allows you to determine thresholds on purchases.
Visibility into the Process
Be honest, when was the last time you asked yourself, “Who has that document?” or “Has this been approved yet?” These are common questions that are asked when processing purchase orders manually. There is no way to identify where things are in the process, who has the PO, and whether or not it has been approved. Too much time is spent on chasing approvals, following up on orders, and figuring out where things are.
By leveraging an automation platform, your team will no longer spend time on searching for information or checking on the status of POs. With instant visibility into where things are in the process, your team is able to immediately determine where things are in the process, who has them, and the status of each PO.
Flexibility & Control
While most organizations process Purchase Orders in similar ways, EVERY company we have worked with has something unique to their process. Whether they require additional levels of approvals based on dollar amount thresholds or are required to do competitive pricing on the item requested, there are always unique exceptions for a company processing POs. In a manual environment, this is challenging to manage and enforce. Things often fall through the cracks and are missed.
When using an automation platform, you can dictate who is able to make decisions, purchases, and more. The system enforces the process that you and your team puts in place so that you can have confidence that the rules and security protocols are being followed. Whether your team has a complex process or a simplified one, automation provides the flexibility and control your team needs to get purchase orders processed efficiently.
When done with the right partner, purchase order automation provides your organization with many benefits and ability to focus on higher value activities. Your team will be able to have insights into types of purchases your team is making, how frequently, and understand your own buying patterns. Purchase order automation is the first step in moving towards an automated accounting department. It’s time to ditch the old way of processing and begin to set a foundation for your company’s growth.
To learn more about how your team could benefit from Purchase Order Automation, schedule a time to connect with our team to run through an ROI report.